Why did the Santos share price take a dive following the company’s investor briefing?

The Santos Ltd (ASX: STO) share price is plummeting this afternoon after the company flagged lower 2023 production and announced a major restructure.

The ASX oil share expects to produce between 91 million and 98 million barrels of oil equivalent in 2023, down from its 2022 guidance of 103 million to 106 million barrels.

It also unveiled a planned restructure that will see the business split into two divisions: Upstream Gas and Liquids and Santos Energy Solutions.

The Santos share price is down 5% right now, trading at $7.59.

Let’s take a closer look at the news released at the company’s investor briefing day.

Santos share price slumps on guidance and split plans

It’s a big news day for Santos, and its share price isn’t responding well. The oil and gas giant’s stock has tumbled after the company looked to the future at this afternoon’s investor briefing.

It flagged its production will likely drop in 2023 amid the end-of field-life at Bayu-Undan and lower Western Australia domestic gas production, as well as the timing of the planned sale of a 5% stake in PNG LNG.

Its sustaining capital expenditure is also expected to jump from US$1.1 billion in 2022 to around US$1.2 billion in 2023, while its major projects capital expenditure is expected to rise from US$1.2 billion to approximately US$1.835 billion.

Santos’ divisional split

The Santos share price is also falling amid the unveiling of the company’s plan to split its business in two.

Following the move, its LNG projects and domestic gas business will be run under the Upstream Gas and Liquids umbrella. The Santos Energy Solutions businesses, meanwhile, will focus on low-carbon processing of gas and liquids, decarbonisation, and clean fuel production.

Santos CEO Kevin Gallagher said the division will provide a low-carbon intensity base business capable of providing shareholder returns and fund the energy transition, continuing:

Given the strong customer demand for our product now and into the future, we will seek to backfill and sustain our core assets to deliver the critical fuels the world needs into the 2040s.

But we will also decarbonise these critical fuels, in-line with our target of net-zero emissions (scope 1 and 2, equity share) by 2040, and produce clean fuels as customer demand evolves.

Upstream Gas and Liquids brought in US$2.6 billion of EBITDAX in the first half of 2022, while Santos Energy Solutions boasted US$149 million of earnings before interest, tax, depreciation, and amortisation (EBITDA).

The company has also revealed a new strategy. Its ‘backfill and sustain – decarbonisation – clean fuels’ strategy will build on its predecessor, the ‘transform – build – grow’ strategy, in place since 2016.

Santos share price snapshot

Despite today’s tumble, the Santos share price has been outperforming recently.

It has lifted 16% since the start of 2022. It’s also trading 9% higher than it was this time last year.

Comparatively, the S&P/ASX 200 Index (ASX: XJO) has fallen 8% year to date and 7% over the last 12 months.

The post Why did the Santos share price take a dive following the company’s investor briefing? appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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